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Fair Value (Tables)
 9 Months Ended
Sep. 30, 2015
Fair Value  
Schedule of derivative instruments carried at fair value

 

The following table presents the derivative instruments carried at fair value as of September 30, 2015 and December 31, 2014 (in thousands):

 

As of September 30, 2015

 

Assets

 

Liabilities

 

Significant other observable inputs (Level 2)

 

 

 

 

 

Commodity contracts

 

$
5,405

 

$
(95

)

Significant unobservable inputs (Level 3)

 

 

 

 

 

Commodity contracts

 
8,480

 
(173

)

Embedded derivatives in commodity contracts

 
21,055

 
(606

)

 

 

 

 

 

 

Total carrying value in Condensed Consolidated Balance Sheets

 

$
34,940

 

$
(874

)

 

 

 

 

 

 

 

 

 

As of December 31, 2014

 

Assets

 

Liabilities

 

Significant other observable inputs (Level 2)

 

 

 

 

 

Commodity contracts

 

$
14,812 

 

$

—

 

Significant unobservable inputs (Level 3)

 

 

 

 

 

Commodity contracts

 
3,840 

 

—

 

Embedded derivatives in commodity contracts

 
18,776 

 

—

 

 

 

 

 

 

 

Total carrying value in Condensed Consolidated Balance Sheets

 

$
37,428 

 

$

—

 

 

 

 

 

 

 

 

 

 

Schedule of information about significant unobservable inputs used in the valuation of Level 3 instruments

 

Level 3 Instrument

 

Balance
Sheet
Classification

 

Unobservable Inputs

 

Value Range

 

Time Period

 

 

 

 

 

 

 

 

 

Commodity contracts

 

Asset

 

Forward ethane prices (per gallon)

 

$0.20 - $0.21

 

Jan. 2016 - Dec. 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

Forward propane prices (per gallon)

 

$0.46 - $0.48

 

Oct. 2015 - Sep. 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

Forward isobutane prices (per gallon)

 

$0.61 - $0.64

 

Oct. 2015 - Mar. 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

Forward normal butane prices (per gallon)

 

$0.56 - $0.62

 

Oct. 2015 - Mar. 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

Forward natural gasoline prices (per gallon)

 

$0.94 - $0.99

 

Oct. 2015 - Dec. 2016

 

 

 

 

 

 

 

 

 

 

 

Liability

 

Forward ethane prices (per gallon)

 

$0.20 - $0.20

 

Oct. 2015 - Dec. 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

Forward propane prices (per gallon)

 

$0.46 - $0.50

 

Oct. 2015 - Dec. 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

Forward normal butane prices (per gallon)

 

$0.62 - $0.62

 

Oct. 2015 - Dec. 2015

 

 

 

 

 

 

 

 

 

Embedded derivatives in commodity contract

 

Asset

 

Forward propane prices (per gallon) (1)

 

$0.46 - $0.53

 

Oct. 2015 - Dec. 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

Forward isobutane prices (per gallon) (1)

 

$0.59 - $0.66

 

Oct. 2015 - Dec. 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

Forward normal butane prices (per gallon) (1)

 

$0.53 - $0.64

 

Oct. 2015 - Dec. 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

Forward natural gasoline prices (per gallon) (1)

 

$0.94 - $1.11

 

Oct. 2015 - Dec. 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

Forward natural gas prices (per MMBtu) (2)

 

$2.37 - $3.42

 

Oct. 2015 - Dec. 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

Probability of renewal (3)

 

0%

 

 

 

 

 

 

 

 

 

 

 

 

 

Liability

 

ERCOT Pricing (per MegaWatt Hour)

 

$23.07 - $25.68

 

Oct. 2015 - Dec. 2015

 

 

(1)

NGL prices used in the valuations are generally at the lower end of the range in the early years and increase over time.

 

(2)

Natural gas prices used in the valuations are generally at the lower end of the range in the early years and increase over time.

 

(3)

The producer counterparty to the embedded derivative has the option to renew the gas purchase agreement and the related keep-whole processing agreement for two successive five-year terms after 2022. The embedded gas purchase agreement cannot be renewed without the renewal of the related keep-whole processing agreement. Due to the significant number of years until the renewal options are exercisable and the high level of uncertainty regarding the counterparty’s future business strategy, the future commodity price environment and the future competitive environment for midstream services in the Appalachia area, management determined that a 0% probability of renewal is an appropriate assumption.

 

Schedule of changes in Level 3 fair value measurements

 

The tables below include a roll forward of the balance sheet amounts for the three and nine months ended September 30, 2015 and 2014 (including the change in fair value) for assets and liabilities classified by the Partnership within Level 3 of the valuation hierarchy (in thousands):

 

 

 

Three months ended September 30, 2015

 

 

 

Commodity Derivative
Contracts (net)

 

Embedded Derivatives
in Commodity
Contracts (net)

 

Fair value at beginning of period

 

$
4,778

 

$
11,736

 

Total gain (realized and unrealized) included in earnings (1)

 
11,388

 
7,671

 

Settlements

 
(7,859

)
1,042

 

 

 

 

 

 

 

Fair value at end of period

 

$
8,307

 

$
20,449

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The amount of total gains for the period included in earnings attributable to the change in unrealized gains or losses relating to contracts still held at end of period (1)

 

$
6,276

 

$
10,103

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended September 30, 2014

 

 

 

Commodity Derivative
Contracts (net)

 

Embedded Derivatives
in Commodity
Contracts (net)

 

Fair value at beginning of period

 

$
(2,092

)

$
(42,831

)

Total gain (realized and unrealized) included in earnings (1)

 
5,626

 
10,715

 

Settlements

 
(380

)
2,203

 

 

 

 

 

 

 

Fair value at end of period

 

$
3,154

 

$
(29,913

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The amount of total gains for the period included in earnings attributable to the change in unrealized gains or losses relating to contracts still held at end of period (1)

 

$
4,109

 

$
11,609

 

 

 

 

 

 

 

 

 

 

 

 

Nine months ended September 30, 2015

 

 

 

Commodity Derivative
Contracts (net)

 

Embedded Derivatives
in Commodity
Contracts (net)

 

Fair value at beginning of period

 

$
3,840

 

$
18,776

 

Total gain (loss) (realized and unrealized) included in earnings (1)

 
18,311

 
(2,527

)

Settlements

 
(13,844

)
4,200

 

 

 

 

 

 

 

Fair value at end of period

 

$
8,307

 

$
20,449

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The amount of total gains for the period included in earnings attributable to the change in unrealized gains or losses relating to contracts still held at end of period (1)

 

$
8,307

 

$
2,943

 

 

 

 

 

 

 

 

 

 

 

 

Nine months ended September 30, 2014

 

 

 

Commodity Derivative
Contracts (net)

 

Embedded Derivatives
in Commodity
Contracts (net)

 

Fair value at beginning of period

 

$
(5,460

)

$
(35,032

)

Total gain (loss) (realized and unrealized) included in earnings (1)

 
1,387

 
(1,352

)

Settlements

 
7,227

 
6,471

 

 

 

 

 

 

 

Fair value at end of period

 

$
3,154

 

$
(29,913

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The amount of total gains for the period included in earnings attributable to the change in unrealized gains or losses relating to contracts still held at end of period (1)

 

$
3,926

 

$
716

 

 

 

 

 

 

 

 

 

 

 

(1)

Gains and losses on Commodity Derivative Contracts classified as Level 3 are recorded in Revenue: Derivative gain. Gains and losses on Embedded Derivatives in Commodity Contracts are recorded in Purchased product costs, Derivative gain related to purchased product costs, Facility expenses and Derivative loss related to facility expenses.